Estimating Subjective Probabilities

Subjective probabilities play a central role in many economic decisions, and act as an
immediate confound of inferences about behavior, unless controlled for. Several procedures to
recover subjective probabilities have been proposed, but in order to recover the correct latent
probability one must either construct elicitation mechanisms that control for risk aversion, or
construct elicitation mechanisms which undertake “calibrating adjustments” to elicited reports. We
illustrate how the joint estimation of risk attitudes and subjective probabilities can provide the calibration
adjustments that theory calls for. We illustrate this approach using data from a controlled experiment
with real monetary consequences to the subjects. This allows the observer to make inferences about
the latent subjective probability, under virtually any well-specified model of choice under subjective
risk, while still employing relatively simple elicitation mechanisms.